Who Has Your Confidential Business Information

This is the second installment in a series of articles providing practical information about all things business.

Confidentiality and non-disclosure agreements (NDAs) are important when selling your business. A company’s most valuable assets are often its confidential information, intellectual property and trade secrets (for the purposes of this article, called “confidential information”).

NDAs are often produced at the beginning of negotiations when a purchaser is assessing your business. At that time, you must ensure that the NDA is specific enough to protect your confidential information. An NDA can be negotiated and amended before execution, and should be discussed and reviewed with your legal counsel.

You might think that your business doesn’t really have any valuable confidential information. But everyone has confidential information to protect, from manuals and programs to unique processes for managing services and marketing flows, and customer/client lists.

There are a number of ways to control the use of your confidential information:

1. All confidential information you produce should be marked “confidential.” Consider the NDA: Is it your responsibility to indicate what is confidential, or is all the information being exchanged considered confidential?
2. Consider password protecting your confidential documents.
3. Ensure limited access to your confidential information. On a shared electronic site (e.g. Dropbox), limit who has editing rights. You can also control who has access to the site. An NDA should contemplate electronic sharing and disallow downloading except in limited circumstances.
4. Often initial discussions with a purchaser do not lead anywhere. To prevent disclosure of your confidential information, consider limiting who knows about your intent (i.e. your legal and financial advisors, and board of directors) until you have a more assured transaction in place.
5. Consider scaling the access granted during due diligence. A customer list, for example, is very valuable to certain businesses. Full disclosure of information like this may be delayed until a final agreement is in place, especially if the purchaser is a competitor of your business and is potentially entering into negotiations to gain access to your customer list.
6. Specify the process for the return and/or destruction of your confidential information in the NDA, and ensure the NDA covers various formats, such as electronic, paper-based and verbal information.

Using these points, you might ask yourself, how can I control what a person does with my confidential information?

There are remedies that can be set out in an NDA, such as a right to an injunction or monetary consequences, to deter misuse. By being aware of the terms of your NDA and ensuring a well-crafted NDA is in place, you can focus on negotiating the sale of your business.

In our next article, we will discuss the management and organization of data in an electronic data room during a purchase and sale transaction.

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